All Forum Posts by: Wilson Lee

 I am using them and looking for an alternative.  With Cozy there is not way to stop partial payments.  It is a liability.  A tenant who knows they are falling behind can stave off an eviction by making a small partial payment. 

Well, Operating expenses are a tricky one.  It could be that the property just will not work as a rental.  Many do not.  We have to buy them cheap enough for it to cash flow.  The best cash flowing properties are normally cheap.  The house I just got last month cost 20,200 and needed $14,000 in rehab. Rents for $700/month. 

There are 2 big buckets in which we place cost.  One is Operating cost and the other is capital expenditure. For tax reasons they are keep separate.  The former is gets deducted against this years taxes the ladder's cost is divided up over the life time of the improvement/asset.  But it is all the same for your bottom line.

Scheduled Rents,  Start by added up all the rents you should receive in a year.

-Vacancy Rate. Vacancy rate is what % of the year can you expect the unit(s) to be vacant.  You can find this online. Later you will take it form the rent rolls. 8 to 10% is safe bet for class D.  5% for the rest.

=Gross Operating Income. The total of the above is the GOI this is how much rent you really will collect.

-Property manager.  10% of the above amount.

-Annual maintenance reserve (CAPEX). Reserves is the amount you need to keep back for repairs see below on making a scheduled.

-Lawn care.  $800/year where I live. 

-Pest control.  $200/year per unit.  based on my current contracts. ($50 each visit. 3 times a year)

-Electrical.  $500/year for one street light 

-Tax/legal. $400. Each property should have it's own LLC.

=Net Operating Income.

Reserves is calculated by taking every thing in the home that can, and will, need to be replaced as it ages. 

Roof                    25 years remaining           $12000 cost         = $480/yr Reserve.

Refrigerators     10                                         $400                       = 40

Stove                   10                                         $300                      = 30

Dishwashers      5                                           $150                      = 30

A/C Unit              20                                         $3000                    = 150

Water Heater    15                                          $300                       Meh, you do the math it is late.

Furnaces            20                                          $3000

Exterior Paint     5                                           $2,000

Carpet                 3                                           $2,000

Interior Paint     3                                            $2,000

You can try subletting.  It is like training wheels for landlording.   Get permission to sublet on a large house 4+ bedrooms.  Then sublet to other students.  The ups and downs will teach you a lot.   You will make a little bit. Or at least save on your living expenses.

Everything else takes money. Still I would look into an FHA loan on a 4 plex as soon as you get out of school. In the meantime, keep your debt low and enjoy collage. There is plenty of time to "adult" later.

You will find many loan officers who have little knowledge of the products they offer. Try a different bank. 

I used Finance of America Mortgage LLC for my FHA loan on a 4 plex

You don't need advice, you know what you are doing.  

A few tips,

Get a property inspection done by an licensed inspector.  Do this when you are under contract and in due diligence

Call insurance companies and ask for a quote.  Ask for replacement to cost on the building, replacement to cost owner's property (appliances and your personal stuff), and ask for 1 year of income replacement.  Require the tenants to get renters insurance with liability coverage of at lest $50,000 and make you the interested party.  If they damage anything file a claim. 

Go ahead and get preapproved if you are not already for the FHA lone. Loan officers can know surprising little about their own loan programs. Make sure they understand FHA allows for 1 to 4 units for owner occupied single family residential.

You have 60 days to move in. Many note holders are very suspicious of 2 to 4 units homes that are FHA. Make sure you have utilities in your name as whoever services the loan will check that first. If the lender thinks you not living there, They must serve you notice and give you *90 days (*needs verification) to remedy. Some note holders may try to bully you into refinancing even if you are occupying.

Run the numbers like you will not be there.  Your personal cost of living is not apart of the deal.  After all you may not want to stay there long after your required 1 year of occupancy.

What is the line of credit's outstanding balance amortized at? 

It feels bad to wast time if his fraud claim falls through.  Would it be viable to do this deal in away that keeps the bank happy and paid?

In the past, some district attorneys have took an interest in bring fraud claims against subject too buyers who don't pay on the mortgage.    You may want to insist that the mortgage be paid up. 
Other options could be a short sale.  The bank may welcome that to avoid this long legal battle. 

Your money could be better spent on paying others to drive for dollars.  Post and ad in your target market.  State you will pay x amount for each vacant house address.  Ask for them to drive to the house, take photos proving vacancy (ie of the utilities).   You can cold call people on Craigslist that offer low cost labor services.  

You can then search public information via this website for free. 

https://publicrecords.netronline.com

It will link you to the county data base.  It is not super user friendly. But it is worth it.

1. PANIC! (just kidding)

2. Motivated sellers are not on the MLS, the are too busy trying to cope with whatever crises they have in their life.

3. A wholesaler I know buys at foreclosure auctions in cash. Then mark up $15k exactly.  None cash buyers don't have access to foreclosures deals.  For the low cost of 15k, he provides that access.

4. Depends, you can always try.  The wholesaler may just have a contract to purchase.  You would have to ask him to negotiate with the owner.  If the wholesaler has title it is easier. 

5. Who cares if they do.  We have to still do our own. It is better if they don't pay for any due diligence as they will pass that expense to you.  And you may not trust what they paid for.  Make sure there is language in the contract for due diligence.  Make sure the wholesaler is not paid a dime until closing.

6. If the contract has zero contingencies,  Do all the diligence that is free.  Then, if it still looks good, Ask that they amend the contract to include contingencies for the diligence that comes out of your pocket.

Will you get a better deal finding your own? Sure.  Will it cost you to set up a marketing funnel and spend a cash up front? you bet!   When you buy form a wholesaler, you are buying their ability to acquire properties that you could not.

happy deal hunting!

Keeping access to a line of credit is important for growth.  There is an important question though.  Is your 150k 2nd line currently out?  Or is the balance paid down?

It could be time to trade up for a larger line of credit.  Talk  to a few local banks, See of any are interested in giving you a 3x or 4x revolving line of credit based off your cash on hand.  Explain you have a home you will be selling. You would have up to 150,000 or more in cash from the sell.  You could land a larger unsecured line of credit if your financials hold up. 

You can offer a number of terms to help them to approve you. You can offer them to hold that cash in a 1 year CD. You could allow them to approve each acquisition under the LOC. You could offer to hold a small equity position in each acquisition. It is all negotiable so go ask!

A +500k line of credit would help your filling business right?   

PS.  CD's are able to be borrowed against if you needed to access that CD.